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The UK market in October

As explained in the 2013 edition of the Almanac, despite its (deserved) reputation for volatility, historically October has been the second strongest month for the UK market.

However, the market does not, of course, increase steadily throughout the month. By looking at the performance of the market in October in past years, a certain pattern of behaviour can be seen.

The following chart plots the average performance of the FTSE 100 Index during October since 1984. For example, since 1984 the index has increased on average by 0.15% on the first trading day of October, and by 0.03% on the second trading day. These average daily returns are used in the chart to plot an average chart of the market for the month (rebased to start at 100).

The chart shows that, historically, the market starts strong in October, generally increasing for the first two weeks (to about the 11th trading day), and then there is a sell-off to around the 20th trading day of the month, when the market rebounds to end strongly.

Why does the market behave like this in October?

There’s no obvious explanation. One reason (and this, again, relies on the strong correlation between the UK and US markets) is that the third-quarter earnings season in the US kicks off around 9 October. So, prices rise in the lead up to company announcements and then sell off on the news. At the end of the month prices may rebound in anticipation of the strong six-month period of the year starting November.